CK Hutchison Surges on $12 Billion Tower Assets Sale Plan


Shares of CK Hutchison Holdings Ltd. jumped the most in almost eight months after saying it’s nearing a deal to sell its tower assets in Europe to Spain’s Cellnex Telecom SA for about 10 billion euros ($11.7 billion).

The conglomerate’s stock gained 8.9% on Thursday in Hong Kong, the most since March 20, outpacing the 3.3% rise in the benchmark Hang Seng Index, data compiled by Bloomberg show.

The group, founded by Hong Kong’s wealthiest tycoon Li Ka-shing, said in a filing Wednesday that it has reached a “substantial agreement” on the terms of a potential transaction, though it hasn’t taken a final decision. Cellnex confirmed the talks but didn’t disclose a value.

A successful deal is likely to help CK Hutchison raise cash, cut debt and also pay for costly 5G network upgrades. The group’s core businesses such as ports and retail have been hit by a trade slowdown, slump in tourism in the wake of U.S.-China tensions, the coronavirus pandemic and political turmoil in Hong Kong.

Chairman Victor Li -- the elder son of the senior Li -- has been seeking ways to control spending and conserve cash after reporting a 29% drop in net income for the first half of the year. Thursday’s share rally has helped the stock pare the year’s loss to about 29%.

“The sale of telco towers is consistent with the group’s strategy of actively looking for value-unlocking opportunities,” Goldman Sachs analysts led by Simon Cheung wrote in a note Thursday. “Nevertheless, how the stock would react to this announcement would depend very much on the use of its proceeds.”

The group could use this money to meet its target of reducing the net debt-to-net capital ratio to about 20% from 25.6%, or fund potential mergers in U.K.’s telecommunications market, according to the Goldman report.

Preferred Option

Hutchison previously considered selling a minority stake in the new unit, CK Hutchison Networks, which has 29,100 towers spread across Europe. Buying it outright is a preferred option for a tower company like Cellnex as it makes it easier to sell capacity to multiple wireless operators on a single mast.

CK Hutchison said the proceeds of a European mast sale would be split with the unit’s minority partners.

CK Hutchison’s British phone company Three UK is back on the lookout for deals after a European Union court in May overturned a veto of the conglomerate’s bid for rival carrier O2, Bloomberg News reported in August.

The tower sale plan was not surprising but the market may have been hoping for a listing of the tower unit, as that would allow CK Hutchison to participate in further industry upside, Morningstar analyst Lorraine Tan said in a note Wednesday. A sale could reduce the group’s profit by about 3.5% if it doesn’t save any operating costs, Tan said.

“The key for CKH is what it plans to use the sales proceeds for in order to improve its earnings outlook,” she said.

Last month, CK Hutchison agreed to sell a part of its stake in Husky Energy Inc., a Canadian asset dealing with mounting losses, to Cenovus Energy Inc. in an all-stock deal, reducing the oil company’s drag on the group’s earnings.

©2020 Bloomberg L.P.

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